Incentives to innovate and social harm: Laissez-faire, authorization or penalties?

Giovanni Immordino, Marco Pagano and Michele Polo

Journal of Public Economics, 2011, vol. 95, issue 7, 864-876

Abstract: When firms' research can lead to potentially harmful innovations, public intervention may thwart their incentives to undertake research by reducing its expected profitability (average deterrence) and may guide the use of innovation (marginal deterrence). We compare four policy regimes: laissez faire, ex-post penalties and two forms of authorization – lenient and strict. If fines are unbounded, laissez faire is optimal if the social harm from innovation is sufficiently unlikely; otherwise, regulation should impose increasing penalties as innovation becomes more dangerous. If fines are bounded by limited liability, for intermediate levels of expected social harm it is optimal to adopt (indifferently) penalties or lenient authorization, while strict authorization becomes optimal if social harm is sufficiently likely.

Keywords: Innovation; Liability for harm; Safety regulation; Authorization (search for similar items in EconPapers)
JEL-codes: D73 K21 K42 L51 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (26)

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Related works:
Journal Article: Incentives to innovate and social harm: Laissez-faire, authorization or penalties? (2011)
Working Paper: Incentives to Innovate and Social Harm: Laissez-Faire, Authorization or Penalties? (2009)
Working Paper: Incentives to Innovate and Social Harm:Laissez-Faire, Authorization or Penalties? (2009)
Working Paper: Incentives to Innovate and Social Harm: Laissez-Faire, Authorization or Penalties? (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:95:y:2011:i:7:p:864-876

DOI: 10.1016/j.jpubeco.2011.01.011

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